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Trump Election Win Weighs on European Auto Stocks

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November 09, 2016

By William Boston and Hendrik Varnholt

BERLIN--The election of Donald Trump as the next U.S. President weighed on European auto stocks, as investors and auto industry executives grew anxious about the impact of a weaker dollar and potential tariffs on automotive exports to the U.S.

During his grueling nearly two-year campaign, Mr. Trump has railed against free-trade deals, especially the North American Free Trade Agreement, or NAFTA, which he said hurt the U.S. economy. He suggested at times imposing as much as a 35% tariff on automotive exports from factories south of the U.S. border with Mexico.

German auto makers could be hit hard if the dollar weakens considerably against the euro, lowering revenue and profits from goods sold in the U.S. and making exports of automotive goods to the U.S. more expensive for U.S. consumers. The U.S. is the German auto industry's second-largest export market after the U.K.

Some analysts are worried that the shock over the outcome of the U.S. election could spread to the global economy, just as Brexit, the Briton's vote in June to leave the European Union, rattled global financial markets, weakened consumer demand and dented global car sales. Others saw a potential upside for auto makers who manufacture in the U.S. and Mexico, saying a weaker dollar and peso could be a boon for exports to global markets.Losses of shares of European auto makers outpaced the broader market in morning trading as investors digested the news of the U.S. election outcome. Volkswagen, BMW, Daimler, Renault, and PSA Peugeot Citroen were down between 2% and 3%, compared with a decline of about 0.8% of Germany's blue-chip DAX index.

For Volkswagen, Europe's biggest car maker by sales, concerns about the economic impact of the U.S. election were compounded by uncertainty over how it could affect the outcome of talks with U.S. authorities to resolve its emissions-cheating scandal.

Volkswagen Chief Executive Matthias Mueller said he would prefer to complete settlement talks with the Justice Dept. of the Obama administration, saying he hoped the change in government would not be "even more negative" for the company.

"We are waiting anxiously to see how the U.S. agencies will be staffed at the beginning of the year," he said.

BMW AG Chief Executive Harald Kruegertold an automotive conference in Munich that the future of NAFTA was shrouded in uncertainty. He also raised doubts about ongoing free trade talks between the U.S. and the European Union, saying it was "too soon to determine" what impact a Trump presidency could have on the talks.

While it is still too early to gauge the impact of a government led by Mr. Trump on auto makers exposed to the U.S., especially those that produce cars in Mexico, analysts pointed out that the German car makers were the most exposed to any post-election risks.

BMW, for example, builds sport-utility vehicles in Spartanburg, South Carolina, but also exports a large number of vehicles to the U.S. BMW sold 269,884 vehicles in the U.S. in the first nine months of this year, down nearly 9% from a year earlier. Its U.S. sales accounted for nearly 16% of its total sales in the period.

"We need a global framework for free trade," said Mr. Kruger.

Volkswagen AG, itsluxury car maker Audi AG, Daimler AG, and BMW operate manufacturing plants in Mexico that could suffer if the U.S. imposes new tariffs on exports from Mexico to the U.S.

Daimler's Mercedes-Benz premium car maker operates an assembly plant in Vance, Alabama, and Volkswagen has a plant in Chattanooga, Tenn.

Daimler CEO Dieter Zetsche said he hoped Mr. Trump would abandon some of the extreme positions he took during the election campaign.

"As in every election statements made during the campaign can only partially describe what is to be expected during the period after the election. I hope that that is especially true in this election," he said.

Germany's automotive industry lobby is worried that Mr. Trump's "America First" rhetoric on the campaign trail could hurt the global economy if it translates into real policy when his administration takes office in January.

"More protectionism or additional trade barriers would hurt the United States as well as its trading partners," said Matthias Wissmann, head of the German Association of the Automotive Industry.

Write to William Boston at William.Boston@wsj.com and Hendrik Varnholt at Hendrik.Varnholt@wsj.com